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I like this idea and reckon it is a good one. Why is it restricted to line of sight though?
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As a balancing mechanic it might be too easy to avoid if limited to LoS.
As Rug mentioned, it's based on the Avatar rule. I think limiting it to LOS makes it a bit more tactical and keeps the AMTL player from being hamstrung by giving you a way to avoid the penalty if you are a clever player.
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I'd be concerned that in bigger games, the AMTL would get exponentially weaker as it would be easy to break every Reaver in the whole army by killing 6 Warhound Titans (pretty easy to do in a big game).
I see your point Ben, however I think there are a few options AMTL can use to mitigate the BMs in larger games. First is to focus more on taking larger titans. If you do want warhounds, take warhound pairs since it would be harder to take the formation down. Also try to plan where your warhounds attack more carefully and if you know it's likely they'll go down try to keep them out of LOS or engage with a limited number. There should be enough terrain and warhounds are small enough to hide in some decent hills or behind some buildings. Since you can't always plan things out perfectly and you'll probably get some BM from the rule, you can always marshal larger titans or other formations that are close to breaking.
None of these options are without consequence but I don't see larger titans being easily broken since you'd still need to kill 6 formations of titans in a single turn to break every reaver on the table. That means you need to kill either 6 warhound singles or 12 warhounds if thy are running packs and with a little thought, an amtl player should be able to prevent that. However, I'm asking that people give the change a go in their next few games and see how it goes before I make the change in the rules.